Fed Pumps $41B Into US Financial System

The action came one day after Fed Chairman Ben Bernanke and all but one of his central bank colleagues voted to slice a key interest rate. It was the second time in six weeks that policymakers acted to protect the economy from the effects of the housing downturn and credit troubles.

Wall Street took a nosedive with the Dow Jones industrials losing 362.14 points to close at 13,567.87.

The Fed on Wednesday ordered its key rate, called the federal funds rate, to be lowered by one-quarter of a percentage point to 4.5 percent. That followed up on a half-percentage point cut in September. Those two rate reductions might be sufficient to help the economy make its way safely through trouble spots, Fed policymakers indicated.

The funds rate affects many other interest rates charged to millions of individuals and businesses and is the Fed's most potent tool for influencing economic activity.

The Federal Reserve Bank of New York, which carries out the central bank's open market operations, moved Thursday to inject $41 billion in temporary reserves into the financial system.

A New York Fed spokesman said it was the largest single day of operations since $50.35 billion was pumped into the system on Sept. 19, 2001, following the terrorist attacks on New York and Washington. He declined further comment.

Fed policymakers at their meeting on Wednesday noted that the "strains from financial markets have eased somewhat on balance." In the past week, many Fed officials have described the state of financial markets as fragile.

Bernanke and other Fed officials have said it will take time for the markets to fully recover from the credit crisis.

Since August, the Fed has been pumping cash into the financial system to help ease strains from the credit crunch. It also has cut its lending rate to banks -- a third such cut came on Wednesday.